Travel analytics company ForwardKeys has offered a positive yet realistic assessment of the impact of the coronavirus (Covid-19) on Chinese outbound travel during a through-provoking webinar, which took place yesterday (23 June).

The webinar, moderated by Olivier Ponti, Vice President Insights, ForwardKeys assessed the recovery and outlook of Chinese domestic travel. It also revealed key insights on the spending habits of Chinese consumers on the tropical island of Hainan, which has remained resilient during the pandemic.

As extensively reported by this publication, Hainan is set to more than triple its offshore duty free allowance from RMB30,000 to RMB100,000 in line with plans to create a Free Trade Port on the island.

Participants in yesterday’s session were treated to valuable insights from Nan Dai, China Market Expert, ForwardKeys, Xu Chen, Product Data Manager, ForwardKeys and Marina Giuliano, Director of Retail and Travel Retail ForwardKeys.

Offering a snapshot of the current situation in China, Dai says the country is gradually reopening for certain travellers. “We know China has set up so-called fast lanes to allow business travel to and from countries including Singapore and South Korea.

POSITIVE PRE-COVID-19 TRENDS

“This cannot happen in all countries which makes it difficult for Chinese outbound travel to resume right now.”

Chinese outbound travel was up 5% in January 2020 (compared to the same month in 2019) before Covid-19 kicked in, according to ForwardKeys research. “Travel to Europe was particularly strong, increasing 33% year-on-year.”

She added: “Covid-19 started to have a strong impact in February, when travel decreased by 79%. From March to May, outbound travel dropped by more than 93% each month with all regions similarly impacted.”

Capacity was also faring well until February, when it was cut because of the ‘five-one rule’ on airlines. This rule limited mainland carriers to one flight per week on a single route to any country and foreign airlines to one weekly flight to China.

“The ban was eased in early June,” revealed Dai. “As of 8 June, if no passengers on a particular route tested positive for Covid-19 for three successive weeks, flights could increase to twice a week.”

With the US also easing restrictions on inbound Chinese flights, could the recovery of Chinese outbound travel gather further pace in the coming weeks? “We are likely to see a decent level of recovery in July, but outbound travel will still only be a small percentage of what it was compared to pre-Covid-19.”

Domestically, air travel in China has been gradually recovering since late February. “In the final week of February, the recovery commenced with a significant 68% growth week-on-week. This coincided with the re-starting of the economy.”

Domestic travel continued to pick up slowly in March and April and was further boosted by the Chinese Labour Day holiday which was extended to five days (1-5 May).

“The extended five-day labour day holiday was perhaps a turning point in terms of the commencement of the tourism recovery. As of 1 May, 70% of tourism attractions had re-opened, albeit at under 30% of their regular capacity as stipulated by the government.”

The recovery trend continued after the Labour Day holiday period, emphasised Dai: “By the last week of May, Chinese domestic travel had reached 50% of what is was during the same period in 2019. This was partly due to universities reopening and students returning.”

While the green shoots of the recovery are evident in terms of Chinese domestic travel, air ticketing trends surrounding this year’s Chinese Dragon Boat Festival (25-27 June) provide a reminder of how travel within China has been impacted by the pandemic.

DOMESTIC TRAVEL RECOVERING SLOWLY

Taking into account the number of air tickets issued between 1 January and 7 June, Chinese domestic travel for the festive period is down by 47% compared to 2019.

Dai remarked: “It’s encouraging to see that air tickets to Sanya in Hainan Island for June and July reached 90% of the volume during the same months of 2019.

“In the period 19-30 June 2020 versus 1-12 June 2019, forward bookings among Chinese travellers to Sanya dropped just -4.7%.”

On Hainan itself, Giuliano outlines the significance of the imminent allowance increase. She said: “The huge duty free allowance increase is part of a much wider plan for the regeneration of the island’s tourism industry. Duty free shopping is at the heart of the programme.

“Hainan has already become the second largest duty free market in China in terms of sales revenue. In 2019, duty free sales revenue in Hainan totalled €1.7bn, only €300m less than the two Shanghai Airports combined.”

Giuliano, who revealed the company is creating an interactive dashboard with fresh data on Hainan, is adamant the raised duty free allowance will stimulate faster growth on the island. “Hainan is a key place in terms of the revival of China’s duty free industry,” she remarked.

Asked during the question and answer session why Chinese spend patterns in Hainan are so relevant for brands, she highlights the government’s long-term plans for the island. “It’s not just about revenge shopping and the short-term results of the crisis. If we consider the ambitious plan of the Chinese government, we can expect growth in terms of tourism and duty free shopping.”

She continued: “The creation of the Free Trade Port is a game-changer as far as the Asian travel retail landscape is concerned. The Free Trade Port will bring investment and the new Haikou International Mall, which will open on the island is sure to have strong consumption potential.”

‘LEADING PARTICIPANT IN CHINESE DUTY FREE’

ForwardKeys’ Chen, who worked with a Chinese company to generate data from offshore duty free credit card usage in Hainan, describes the island as ‘a leading participant in the Chinese duty free industry.’

He also suggests it is recovering much faster than elsewhere in China and certain cities and countries around the world.

“Airport duty free credit card transactions in first-tier cities such as Beijing, Shanghai, Guangzhou and Shenzhen dropped by 96% and 99% in March and April respectively.

“Overall duty free transactions in Hainan were down by 55% in March, but things improved in April, with transactions increasing 7% year-on-year.”

On a month-on-month basis (April over March), sales in tier-one airports dropped -85% in April compared to March, due to global travel bans. “In Hainan, April transactions increased 68% over March due to the lifting of nationwide domestic travel restrictions.”

Based on the number of credit card transactions for luxury brand purchases between June and November 2019, ForwardKeys pinpointed Louis Vuitton (22.9%), Gucci (16.5%), Chanel (13.3%), Hermes Paris (11.2%) and Burberry (10.4%) as the five most popular luxury brands.

Presenting further findings, Chen revealed: “We found that around 8,000 shoppers in Hainan have made at least one luxury purchase in the past six months. Among those shoppers, 60% made one luxury purchase and 29% made two or more. Around 11% made frequent purchases.”

Regarding the spending range per transaction on luxury goods, 38.5% of shoppers spent more than €2,500, according to the study.